Sanctions on Services Involving Maritime Transport of Russian Oil: Summary of U.S. Preliminary Guidance and Next Steps

Details on the U.S. Government’s Maritime Services Policy

The U.S. maritime services policy will affect both purchasers of seaborne Russian oil and service providers for maritime transportation. To be eligible to receive maritime services, purchasers must provide documentation or otherwise attest to service providers that the oil to be transported was purchased at or below the price cap. Service providers must require such records or attestation before providing maritime services for Russian seaborne oil, and all parties must retain such records for five years.

According to the Preliminary Guidance, service providers who inadvertently deal in seaborne Russian oil purchased above the price cap will not be liable for sanctions violations resulting from bad faith or misrepresentations by purchasers, pursuant to the “safe harbor” provided by the recordkeeping and attestation process. (The Preliminary Guidance provides additional detail regarding the type of information service providers must request from those seeking their services, depending on the level of price information available to them in the ordinary course of business.)

Finally, in addition to sanctions liability for service providers, purchasers of seaborne Russian oil are subject to sanctions enforcement actions by OFAC if they (a) make significant purchases above the price cap and knowingly rely on service providers subject to the maritime services policy or (2) knowingly provide false information to service providers.

Examples of Permitted vs. Prohibited Transactions Under the Maritime Services Policy

OFAC’s Preliminary Guidance offers examples of permissible versus prohibited transactions under the maritime services policy:

• Permitted
  • A commodities broker/trader dealing in seaborne Russian oil certifies compliance with the price cap and provides a contract to a financial institution, which retains the documentation for five years. The financial institution conducts its own due diligence to determine that the oil was purchased at or below the price cap and provides financing to the customer for the transaction.
• Prohibited
  • A refiner purchases seaborne Russian oil below the price cap from a Russian oil exporter and passes along the relevant documentation; the refiner separately agrees to remit profits to the exporter, effectively raising the price above the price cap. The refiner is subject to sanctions enforcement.
  • A commodities broker/trader purchases seaborne Russian oil above the price cap but falsifies the documentation given to service providers. The broker/trader is subject to sanctions enforcement.

Further Guidance on Sanctions Evasion Forthcoming From OFAC

The Preliminary Guidance states that U.S. persons will be required to reject and report transactions seeking to evade or violating the maritime services policy. OFAC anticipates publishing both further guidance on identification of transactions seeking to evade the price cap on seaborne Russian oil, and best practices for mitigating risk of sanctions violations. OFAC already notes that possible red flags for evasion of the maritime services policy include (i) evidence of deceptive shipping practices or manipulated shipping documentation; (ii) customer reluctance or refusal to provide price information; (iii) atypical transaction terms such as unusually favorable prices, inflated costs, or circuitous payment mechanisms; (iv) newly formed counterparties; and (v) abnormal shipping routes.

Existing Measures Enacted by G7 Members

The EU has already enacted restrictions on the provision of technical assistance, financial assistance, and brokering services (including insurance) related to the maritime transport to third countries of crude oil or petroleum products originating in or exported from Russia. There is a six-month wind-down period for contracts signed before June 4, 2022, i.e., until December 5, 2022. The purchase, import, or transfer into the EU of crude oil and petroleum products originating in, or exported from, Russia is also restricted.

The United Kingdom has imposed a blanket ban on the import of oil and oil products consigned from Russia where those imports are made on or after December 31, 2022. This includes items under commodity codes 2709–2715 (petroleum products), 2207 (varieties of ethyl alcohol), and 3826 (biodiesel oil and certain mixtures thereof). The prohibition also covers acquisition of oil and oil products originating in Russia or located in Russia with the intention of those goods’ entering the UK, supply or delivery of oil and oil products from Russia to the UK, and related services such as technical assistance, financial services, and brokering.

Next Steps

The U.S. maritime services policy — combining sanctions on the services sector with a price cap — is unprecedented in U.S. sanctions enforcement, and we thus expect there will be many questions as OFAC continues to provide guidance regarding administration and enforcement. We anticipate similar questions will arise as other members of the G7 provide details on their plans for implementing the price cap on seaborne Russian oil.

Sidley is uniquely positioned to advise its clients regarding this new policy, with international trade practitioners in the U.S., EU, UK, and Japan who can advise on sanctions developments among the G7 members, and energy practitioners who have deep expertise in navigating price caps within the energy industry. Working together, these teams can provide comprehensive guidance for clients affected by the maritime services policy.